Yellowstone Partners Blog

As we have watched the spot price for gold slice aggressively through previous highs, boldly ascending at an alarming pace, capriciously eclipsing expectations, the question must be asked: is Gold an investment for the ages?

The simple answer is, “yes and no.” The slightly difficult answer is, “it depends.” The thoroughly complex answer is, “keep reading.”

If Warren Buffett has taught us anything, it’s that investing is about finding value. Investing is about arbitrage… imbalance not between perception of value and reality, but between perception of value today, and perception of value in the future.

Gold is a solid investment if the perception of value will be greater in the future than it is at present. “Future” in this sense can only be defined by the duration specified by the investor. For some investors, “future” might be dozens of years, for others, “future” might be a matter of minutes.

To illustrate; consider that if you bought gold any time from January to March or June to December of 1980, you would likely have waited some 26 years before you ever made a profit… and that’s if you didn’t sell when your investment dropped more than 50%. And by that time, if your journey on Earth hadn’t already expired, you would need that investment at least to double just to get back what inflation had taken from you over those 26 years… something it still hasn’t done even three years later at all-time highs.

Yet, had you allocated your investments to the S&P 500 Index over that same timeframe, you would have the kind of investment returns that we all dream of – the kind with a comma: 2,390% (Almost 13% annualized).

In contrast, if you had bought gold in early 2000 (while we’re seeing with perfect 20/20 hindsight, let’s just go ahead and say you called the top of the Nasdaq and cashed out at 5000), now, some 9 years later, you would be sitting atop your cash heap with a wide grin and a 268% gain (14.3% annualized).

To provide reference, consider that in this same scenario, had you invested in the S&P 500 Index, you’d be pining over an 11% loss.

Then, to summarize, gold is and isn’t an investment for the ages. As with everything in investing, it is a question of timing – a question of value. There is a reason the answer is, so often, “maybe.”

This is a case study for diversification. The lesson might be never to spurn any single investment category, and never to believe any to be infallible. There is no replacement for prudent diversification of investment assets.

Disclaimer: This is not a solicitation to buy or sell any security or particular investment. Investing entails risk which may not be suitable for everyone. These figures were calculated in US Dollars with information provided by Bloomberg. Past performance is not a guarantee for future returns. The S&P 500 Index is compiled and managed by Standard and Poors and cannot be invested in directly.